Excerpts from interview with Arthur Levitt
On 640 Mojo Radio in Toronto, Sept. 30, 2004
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Former U.S. Securities & Exchange Commission Chair Arthur Levitt conducted an independent study of NHL finances and released the results -- documenting losses of $273 million during the 2002-03 season -- in February, 2004. Following are excerpts of his comments during an interview with Bill Watters and Jeff Marek on 640 Mojo Radio in Toronto on Sept. 30, 2004:
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Jeff Marek: It's our pleasure to welcome to the show a very distinguished gentleman, the former chair of the SEC, Mr. Arthur Levitt. Mr. Levitt, your report, of course, a galvanizing force in the CBA discussions, both for the owners and the players side as well. When Gary Bettman approached you to put this report together, what did he say to you? Did he say 'this is the definition of hockey revenue, go to it' or did he say 'in your estimation, define what is hockey revenue and go from there?'
Arthur Levitt: No. What he did initially was he said he has a problem and the problem dealt with an argument that was going on between the Players' Association and the owners as to what revenue actually was received. He asked me whether I could evaluate the earnings of the clubs and come back with an answer. And I told him I would do it on one condition. That was, I was free to hire a firm of forensic accountants that did not represent any hockey teams and that I could study the League over a period of time and that I would be free to release the results to the press no matter what I found. And that he would make available to me and every club would make available to me the information I required.
Bill Watters: And as a result of that you have a union chief who is essentially saying that this was a cooked book situation and you were told what revenue goes into the total. And of course, you are saying that that is untrue.
Levitt: It is untrue. I've had a long career in public service in dealing with numbers and I think the issue of the finances of the clubs should not be a negotiating issue at this point because I am satisfied that, not only our forensic accountants but every major accounting firm in America has created numbers that I believe are unassailable. The business is a terrible business -- it is not one I would invest in. And I think it is tragic for the fans, particularly the Canadian fans who feel so passionately, to be deprived of this great sport on an issue that is a non-event. There are issues -- namely 73 cents out of every dollar are paid out in salaries and I don't know of any business that could that could endure that kind of distortion.
Watters: And I agree with you -- they are whacking away at the wrong syllable -- if I could use that term. The one thing that seemed to play into the union's hands -- and you can clarify this Mr. Levitt -- Bill Daly was talking on ESPN last week and said that the New York Rangers lose money. ... Can you envision the New York Rangers losing money when the building is packed every night?
Levitt: Yes, they do lose money and I did see those numbers. And we accounted for those numbers -- we accounted for revenue that went to television ownership that the club has -- there are a number of clubs that own their own television stations and their own arenas.
Watters: And the Rangers do that, do they not?
Levitt: Yes. We analyzed those revenues and included them in our overall computation. I've asked the leadership of the Players' Association that if they have questions about the report if they'd want to meet with me and talk about it. They wrote back and indicated that they did not think that that would be productive. And that surprised me.
Watters: Well, that's the smoking gun. If you confronted them with the facts then there would be nothing more to talk about. They'd have to get down to business.
Levitt: There's a lot to talk about and, in the meantime, players and fans are being deprived of their sport which is terrible.
Watters: To go back to the Rangers -- because I think that your explanation certainly solidified my opinion at least of the validity of what the owners are saying. And I think they are close to being right on as they can be. What about television -- the television market in New York. Do the Rangers as a hockey club receive a fair market value for their television rights from MSG Inc. Or were you able to ascertain that?
Levitt: We were able to account for television revenue received by the Rangers by setting up a template which compared revenue for various clubs in different markets. We were able to account for it and we did account for it.
Watters: And it was not unreasonable?
Levitt: No. It was not unreasonable.
Watters: Because that is where the attack would be made. What about paying rent for Madison Square Garden per se. Was that disproportionately large so that Rangers appear to be losing money when the other people in their lodge don't pay nearly as much in rent.
Levitt: No. I don't think that's the case. What we did with the Rangers, as well as with every club that owns their arena is to not only take into consideration the fact that the arena isn't used exclusively by the hockey club but we actually set up a formula that established precisely how much revenue was received and we accounted for that.
Marek: In your estimation as one of the most respected financial people across the world, how have NHL owners run their clubs over the last 10 years and your thoughts on a group wanting to buy the Canucks and arena for $250 million?
Levitt: I don't know enough about the management of any particular team. I do know that a lot of people buy into athletic teams for non-economic reasons and up to a point that is reasonable. But when I see clubs that cannot be sold for as much money as they were purchased for -- ego is simply not enough to drive the economics of hockey. So without commenting on the quality of management -- because I don't know the managers that intimately -- I believe the clubs have a serious problem that no amount of managerial skill can address. Too much money is being paid in salaries. You could bring in Lou Gerstner or Jack Welsh -- all they would do is sell the institutions. And I would not buy into anything that non-economic.
Marek: Thank you for joining us.
Levitt: You are welcome.
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Watters (after interview): I could see why Bob did not want to talk with Arthur. ... I think it is fair to say that the hard cap ($31 million) may be too hard an issue to take at this point. I don't think there is any disputing what the problem is. The problem is 73 to 76 percent of gross revenue in the hockey industry is usurped by salaries. It has to go down to the mid 50's -- that is where it is going and we won't have hockey until it is there.
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